"Soon (unless Congress changes the law, or the IRS publishes another nonenforcement), for a participant whose FICA wages from the employer in the preceding calendar year was more than $145,000 (or the inflation-indexed amount), an age-based catch-up deferral must be made only as Roth deferrals. For those participants, non-Roth deferrals are allowed only up to the without-catchup elective-deferral limit (or the plan's constraint, including a constraint that follows a nondiscrimination measure).

"On January 13, 2025, the Treasury published a proposed rule stating interpretations of Internal Revenue Code Section 414(v)(7) and related tax law. That notice includes some ways an employer might treat an affected participant's election to make non-Roth deferrals as, to the extent of what would be beyond the without-catchup elective-deferral limit, a deemed election to make Roth deferrals.

"I've heard about (at least) two ways an employer and its recordkeeper might use such a deemed election: [1] Starting with the first pay period of 2026, adjust a Section 414(v)-affected participant's per-pay amounts or percentages between non-Roth and Roth deferrals so they would result in fitting amounts for 2026 if one assumes a participant remains employed throughout the year and makes deferrals in every pay period of the year. [2] During 2026, apply a participant's election for non-Roth deferrals until the sum of those deferrals reaches the year's without-catchup elective-deferral limit. Then, treat any further deferral as Roth deferrals, until the year ends.

"Are both those ways logically consistent with the Treasury's proposed rule? If not, which way does not fall in with the proposed rule? If there is a choice, which way would you suggest? And why? If you like way 1 (starting with the first pay period), what adjustment would you allow if the participant's employment ended before the year ended and this would result -- without an adjustment or reclassification -- in not filling-up with non-Roth deferrals all that may be done within the year's without-catchup elective-deferral limit?

"In thinking through your suggestion and reasoning, assume: your client is the employer; the plan has hundreds or thousands of Section 414(v)-affected participants; the plan gets services from a big recordkeeper; and your advice is needed now because a half-year is a short time for software and systems changes. Also, assume the proposed rule, although it does not apply for 2026, is the available Treasury interpretation, which a plan may apply regarding a participant's tax year after 2023."

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"We administer a small defined benefit plan for an attorney. He has no employees and gets most (if not all of his paralegal work) done by a firm that provides contractors. The plan has been in place for 7 years and is currently frozen. The idea was that it will soon be terminated and distributed. The attorney is now selling his law practice through a stock sale. Each year the buyer will receive 20% of the corporation's stock until 100% is owned after the fifth year. The seller wants to unfreeze the plan and make substantial contributions for one year of about $300,000 then terminate the plan.

"Question: when this sale is taking place, does an affiliated service group exist? And if so, I would think the buyer and his 3 employees and the seller (only him) would need to be aggregated for all testing in the now unfrozen defined benefit plan. It turns out the seller does not want to cover anyone but him. If an affiliated service group exists I would think we would have 5 to consider. Just for 401(a)26 he would then need to cover (5 x 40% = 2). Just out of curiosity, would an affiliated service group exist if this were an asset sale (for example a sale price of $1.5M with the buyer paying 20% of $1.5M each year for 5 years)?"